Research
Briefing Charity Tax Review: Summary of Research Findings
Stimulating
a culture of charitable giving through tax reliefs
Charitable
giving by the general public is a major source of income for the voluntary
sector, accounting for up to a third of total income. Evidence from several
recent sources has shown that there has been a long-term decline in participation
in giving, especially amongst the young, although there is some evidence
that this decline may be levelling off.
The
Government has stated its intention to create a new `giving age', and,
as part of this initiative, is seeking to make the tax system `more modern,
flexible and simple' for donors and charities. In its consultation document,
Review of Charity Taxation, March 1999, the Treasury put forward
a number of proposals to the existing tax incentives to encourage people
to give to charity, generally referred to as `tax-effective giving'. The
proposed changes to tax-effective giving are intended to contribute to
the creation of a widespread culture of giving (see back page for details
of the existing tax incentives for giving).
The
proposals included:
- Reducing the minimum
limit for Gift Aid donations
- The facility to
make Gift Aid donations in instalments
- Increasing or
removing the maximum limit for Payroll Giving donations
- The facility for
employers to distribute Payroll Giving donations directly to charities,
without using a Payroll Giving agency
- A campaign to
promote Payroll Giving, backed by a 10% supplement on donations, paid
by the Government to charities
- Possible new tax
incentives, including basic rate tax relief on donations going to the
donor instead of to the charity
The
consultation document acknowledged the need for further research on these
proposals. In response, CAF (Charities Aid Foundation), the Inland Revenue
(IR) and the National Council for Voluntary Organisations (NCVO) set up
a joint research programme to assess the likely impact. Knowledge and
understanding of the current tax incentives and motives for giving and
barriers to giving were also studied in order to be able to effectively
promote awareness and take-up of the tax reliefs.
This
paper summarises the results of the extensive and wide-ranging research
programme that was carried out. Further details of the research programme
and how further information can be obtained are set out on the back page
of this document.
Current patterns
of charitable giving in the UK
Participation
in giving
- 67% of the population
gave to charity in the course of one month (July 1999) by all methods.
These individuals are henceforward referred to as `givers'. Givers tend
on the whole to be older, more affluent, and are more likely to be women,
as compared with the general population.
- Tax-effective
giving is currently confined to about one-tenth of the population.
Use
of tax-effective giving
- The proportion
of the population giving by the different tax-effective methods are:
5% Covenant
3% Payroll deduction
0.6%
Gift Aid
0.2%
Millennium Gift Aid1
- Covenants are
generally preferred by older, higher income individuals, payroll givers
are spread across all age-bands with a majority in the 35-44 group.
Whilst Gift Aid use is confined to those over 35 years of age, Millennium
Gift Aid is largely taken up by its target audience - young people,
the lowest paid and the oldest in the sample, though overall uptake
is low.
Patterns
of giving
- 17% of givers
in the survey said they would prefer to give on a regular monthly basis.
This is considerably higher than the proportion of the population who
currently do so (approximately 10%), suggesting that there is some scope
for extending regular giving, particularly in relation to higher incomes
and social class bands.
- The youngest and
oldest individuals are least likely to want to commit to regular giving.
The most popular method of donation amongst younger lower paid individuals
was spur of the moment street collections. Although the majority of
respondents had bank accounts, they had not used direct debits or standing
orders for charitable giving, and said they did not intend to do so.
Ease
of giving
- Almost two-thirds
of givers (64%) felt that the ease of giving (e.g. the amount of paperwork
involved) was important or very important to them. There
was some indication that this was slightly more important to young people,
or to those with high incomes who might be making greater current use
of tax- effective giving schemes.
Methods
of non-cash giving
- The general population's
preferred methods of giving by any non-cash method tended to follow
a somewhat `traditional' pattern:
51%
cheque
12%
direct debit or standing order
11%
postal orders
8%
credit or debit card
6%
payroll deduction
4%
via the Internet
Internet
giving
- Although the current
use of on-line giving is limited - only 1% of givers had actually made
a donation via the Internet - 33% knew that this was possible, and 77%
have easy access to the Internet (mostly younger and wealthier people).
While 92% said they would be unlikely to use the Internet in the future,
younger people were considerably more likely than older people to say
they would use it.
Awareness
and understanding of tax-effective giving methods
- Although only
9% of the population use tax-effective giving methods, 43% of the general
population are aware of the fact that there are tax-effective ways of
giving to charity.
- Young people and
those earning less were much less likely than older people to know about
tax-effective giving schemes. In fact about three-quarters of those
who did know about tax-effective schemes earned over £35k.
- Understanding
is also clearly a problem for about one-quarter of the population; this
consists of 13% who do not know how to donate tax-effectively, and 11%
who think it is `too difficult'.
- There is considerable
evidence, that those already involved in committed giving have a much
better understanding. Amongst existing payroll givers, the tax benefit
influenced 79% in joining the scheme, from all age and income bands,
which shows how the knowledge gap can be overcome where individuals
are directly initiated into schemes.
- 83% of individuals
in the higher income survey were aware of tax-effective giving to charity,
and of these 60% had used tax-effective methods.
- In spite of this,
only half of the high earners (48%) could actually name any tax-effective
schemes, and there were several misunderstandings of the application
of tax reliefs within the various schemes.
Do
tax incentives motivate people to give?
General
attitudes
- Focus group discussions
suggested that in deciding whether to give or not, givers are more guided
by the cause they are asked to support than by considerations of tax-effectiveness
or other concerns. Individuals are divided between those who favour
a high level of involvement in their giving and those who want giving
to be quick, easy and low profile.
Attitudes
to using tax-effective schemes
- Although basically
in favour of tax-effective giving, people have some misgivings about
its perceived impersonality, perceived costs, and whether it might influence
Government to raise taxes or cut services.
- Although some
people had expressed a preference for regular giving, when asked why
they did not use tax-effective schemes 7% of the general population
sample said they did not want to commit to regular tax-effective giving,
as they preferred to give spontaneously. 6% said they could not afford
it, and 3% did not give enough money for it to be tax-effective.
- Despite this,
almost half of the sample of givers (49%) felt that it was important
or very important to give donations that are tax-effective
to charity. These attitudes were concentrated among higher social classes
and higher income groups, although there did not appear to be an age
effect.
- Only half this
proportion (23%) felt that it was important or very important
to them to be able to reduce their own tax bill by giving.
- One-third (33%)
of givers said that they would be very or quite likely to
use tax-effective methods in future. Likelihood of future use is more
likely amongst younger and more affluent individuals.
- In order to make
a tax-effective donation 42% of givers were happy to fill in paperwork
and send off a form with their name, address and confirmation of their
tax status, 19% were happy to do this by telephone, and 5% were happy
to do this through the Internet.
Younger
People - how they give and why they don't give more
- The small sample
of interviews with younger, lower income earners revealed that lack
of disposable income, a desire to spend all the money they earned on
themselves, and a feeling that charities lacked relevance to their own
experience, were all advanced as reasons why young people donate less
to charities than other age groups.
- The younger, lower
earners felt that charity advertisements should be targeted more to
give information and feedback about how the money is used, and information
should be made more relevant and exciting to young people if charities
want to attract them to donate more regularly.
Use
of tax returns for donations
- One-third of the
higher income sample thought that a reminder on the tax return would
encourage more giving, and a further 23% thought it probably would.
Donor
tax benefits
- Just under one-quarter
of the sample thought donors would give more if the benefit went to
the donor (as in the US), but more than half of these would not donate
the additional 30% needed to compensate charities for the loss of tax
benefits entailed in such a system.
Gift
Aid
Lowering
the threshold
- 16% of all givers
already give £100 or more to one charity in an average year, either
in a lump sum or a number of smaller gifts, but not using the Gift Aid
schemes. These givers tend to be older and more affluent.
- The percentage
of givers willing to give a lump sum donation via the existing Gift
Aid scheme if the lower limit were set at £100, was 12%.
- If the level were
set at £50, the percentage who say they would use Gift Aid more
than doubles to 27% amongst givers.
- If the level were
set at £20, the percentage of givers more than doubles to 56%.
- The ability to
pay in instalments did not appear to be an incentive to most. Only an
additional 7% of all givers said that they would be likely to give £100
in instalments. This proportion fell to 3% at £50, and reverted to 7%
for £20.
- The evidence suggests
that a reduction of the Gift Aid threshold would appear to be attractive
to considerably higher proportions of people than currently use the
scheme. The introduction of an instalment facility was not particularly
attractive, although this may be to do with misunderstandings around
the term itself. And while some people may not need to give in instalments,
there was some evidence that the younger, lower paid individuals might
find instalments easier for them than a lump sum donation.
- Additionally,
there is some evidence that the lower Gift Aid limit would cause a certain
amount of new money to be donated to charity. While half of the
general population were unsure, almost one quarter (24%) of givers thought
that use of an extended Gift Aid scheme would not affect their other
giving habits.
- The interest in
the dropping of the tax-effective thresholds expressed, however, needs
to be considered in the context of the general lack of understanding
the tax-effective giving schemes and their rules.
Payroll
Giving
Use
of Payroll Giving
- Payroll Giving
continue to increase each year with 1997/98 showing a 22% increase in
receipts on the previous year. This is the highest level of growth since
1992/93 and may in some part be due to recent professional promotional
campaigns.
- Despite the continuing
growth, Payroll Giving still has a relatively low take-up with 1% of
employers and 2% of employees participating. However, unlike other tax-effective
giving schemes, Payroll Giving attracts a large majority of low-income
earners, and a large number of small donations.
- The tax benefit
was important to almost 80% of employees, whether giving large or small
donations, when deciding to join the scheme. Only 28% of lower givers
use additional tax-effective methods of giving compared with 62% of
higher givers. This reflects the importance of this form of giving to
the lower-income donors who tend to make lower donations. It is the
main way in which they can receive a tax benefit.
Raising
or abolishing the £1200 per year maximum
- The level of people's
Payroll Giving related to the likely impact of changing thresholds.
For example, 73% of higher payroll givers said they would be likely
to increase their payroll donations if the limit was lifted or abolished.
Conversely, 89% of lower payroll givers would not change their level
of giving if the limit were altered.
- Although 58% of
higher payroll givers say they would not give less by other methods
if the limit were abolished or raised, a substantial minority of 42%
say they would.
- Both employers
and charities felt the maximum limit should be abandoned, and many thought
there was little point to thresholds at all as so few payroll donors
(1%) give at the limit.
- There is a certain
amount of confusion about actual value of the current threshold, with
some respondents saying they were giving at the limit, when in fact
they were giving less. This may be because when previous limits have
been raised, donors were unaware of the changes.
A
supplement on donations for Payroll Giving
- A 10% supplement
on donations was expected by 88% of payroll givers and 49% of the general
population to encourage or probably encourage people to give more to
charity. IN focus groups, employers and charities would welcome the
extra 10% on payroll donations, although generally they thought it could
be better used for extra publicity and promotion.
- Young people generally
thought a 10% supplement by the Government to be a good idea, although
few felt it would encourage them specifically to join a scheme.
Agency
charities and choice
- One of the proposals
in the consultation document was whether employers should be able to
deal directly with charities, without the use of an agency charity to
process the payroll donation. This might involve restricting the range
of charities to which donors can give.
- In focus groups,
the role of the agency charities was much appreciated by employers.
Neither employers nor charities saw any particular benefit in changing
the way Payroll Giving schemes are administered.
- Charities opposed
the proposal to allow companies to deal directly with them, as they
felt it would mean extra administration and costs for them, and for
companies. Small companies in particular would find this hard.
- However, 98% of
payroll givers thought that freedom of choice about which charity they
could support was important. This was reflected in the fact that 63%
said they would not have joined the scheme if their choice had been
restricted.
- Young people especially
felt it was very important to be able to choose the charity to support;
they did not want their money going to causes they did not like or approve
of.
Promotion
and awareness of Payroll Giving
- Employers, charities
and donors alike, felt that lack of knowledge and understanding of the
scheme was inhibiting its development.
- Employers not
taking part in the scheme are generally concerned about the amount of
work they perceive it would generate. Those operating the scheme stressed
how easy it is to run.
- While some young
people knew about their employer's Payroll Giving scheme none participated,
and few knew many details. This was due to lack of interest and the
fact that they felt they could not afford to contribute at present.
Many young people did not feel the scheme was attractive or relevant
to them.
- Only about one-fifth
of the total population (19%) reported that their employers offered
a Payroll Giving scheme. Of those using Payroll Giving, 42% had first
heard about the scheme through a promotion at work indicating the important
role of workplace promotions.
- 21% of the general
population whose employers did not currently offer a Payroll Giving
scheme said that they would or might join if offered. Currently only
about 2% of all employees take part in Payroll Giving, 21% therefore
represents over 10 times the number of givers currently using the scheme.
- Employers, charities
and existing payroll givers thought that the most important way of boosting
the take-up of Payroll Giving schemes would be through a sustained,
high profile national campaign, aimed at both employees and employers.
The majority of employers operating the scheme consist of many of the
largest companies in the UK. Therefore a promotion could be aimed at
smaller organisations as well as encouraging more employees to participate
in existing schemes.
Value
of Payroll Giving donations
- About one-third
of payroll givers have been in the scheme for seven years or more. Only
12% have ever been asked to increase the level of their payroll donation.
The scheme does not have a mechanism for addressing the gradual erosion
of the value of donations. This is a particular problem as the vast
majority of donations are below £500 per annum.
- There was evidence
that people would give more if asked. Just over one-third of donors
say they would increase their donations if prompted by a form left annually
on their desks.
Methodology
The
full research programme consisted of the following surveys and focus groups
carried out in the summer of 1999.
- A survey of the
general population of the UK included 1,803 randomly sampled individuals
representative of all UK adults.
- Interviews were
carried out with 16 young wage earners (tax payers) aged between 16
and 25 years.
- Telephone interviews
were carried out with 30 individuals earning £38,000 or more per annum.
- Questionnaires
were sent to more than 8,000 current users of Payroll Giving schemes
from three different agencies.
- 4 focus groups
and 20 telephone interviews were held with charities and employers.
- 4 focus groups
were carried out with people on low and high incomes to explore barriers
and motives to charitable giving.
Types
of tax effective giving
Gift
Aid is a system where an individual or a business can give a one-off
donation to charity, and the charity can reclaim basic rate tax on the
donations. The minimum donation is currently £250 (no maximum). At the
higher tax bracket (40%) the charity receives 23% tax relief and the donor
receives the other 17%.
Deeds
of covenant are legally enforceable commitments to pay a fixed amount
regularly to charity over a period exceeding three years. There is no
minimum or maximum limit. Covenants are like Gift Aid in terms of tax
relief, but the system for covenants is more complex and arguably involves
more administration than either Gift Aid or Payroll Giving.
Payroll
Giving is currently available to employees on PAYE whose employers
offer the scheme. Up to £1200 per annum can currently be given to any
charity or charities and there is no minimum donation. Payment is made
direct from salary, before tax, and the tax relief is given to the donor.
Millennium
Gift Aid was introduced by the Government last year as a special case
of Gift Aid. The minimum gift is £100 (payable in instalments if desired)
and all donations go only to charities dedicated to helping the world's
poorest countries, and refugees from Kosovo. Millennium Gift Aid officially
ends on 31st December 2000.
Further
information
Further
details of all of the research are available from the following:
Debbie
Romney-Alexander at CAF Research for the Payroll Giving surveys, interviews
with young people and employer and charity focus groups;
Catherine
Walker at CAF Research for tax effective giving aspects of the general
population survey, and the high earner telephone interviews;
Pauline
Jas at NCVO for the individual giving aspects of the general population
survey, and the focus groups with people on high and low incomes.
The
above research was carried out in conjunction with, and supported by the
Inland Revenue.
CAF
Research, Charities Aid Foundation, Kings Hill, West Malling, Kent ME19
4TA. Tel: 01732 520125
NCVO,
Regent's Wharf, All Saints Street, London N1 9 RL. Tel: (020) - 7713 6161
